Cover story: NFLX, which helped create the streaming movie business, “has a plot flaw, one that could cut its share price by more than half by the end of the decade”: It doesn’t own content—even its Netflix Originals are licensed—while companies such as DIS and FB are increasingly turning into competitors.
Features:
1) Excerpt from Joel Tillinghast’s new book, “Big Money Thinks Small,” in which the author says the best investment risks are those that can be analyzed clearly and that offer favorable odds;
2) Positive on Volkswagen: Automaker has the lowest price/earnings ratio in the industry, while its luxury brands—Porsche and Audi—are undervalued; as its emissions scandal recedes, shares could rise by 50%.
Tech Trader: Positive on MSFT: Tech giant has deftly managed a transformation into cloud computing without denting its profit margins, while its computer game division and LNKD acquisition add to the success story; Shares could rise by more than 20% during the next year.
Trader: Geopolitics can create anxiety in markets, says Gluskin Sheff’s David Rosenberg, but they aren’t going to bring the U.S. economy down; The S&P 500’s forward price/earnings ratio is higher than it was three years ago, meaning a lot of good news is already priced into shares; Positive on DKS: Sporting goods chain should benefit as rivals shutter stores because of AMZN, leaving it to gain market share while finding ways to fend off the e-commerce giant.
Interviews:
1) Joel Tillinghast, manager of the Fidelity Low-Priced Stock fund, which has returned 13.8% a year since its launch in 1989 (picks: Japan: Dvx, Central Automotive Products; Korea: Nice Info & Telecommunications, Korea Electric Terminal; Ireland: Abbey; Norway: Sparebank 1 Oestlandet);
2) Andy Rothman, strategist at Matthews Asia, talks about China’s economic prospects and says investors could have a great buying opportunity if the Trump administration goes after Chinese exports.
Profile: Jenna Barnard and John Pattullo, co-managers of the Janus Henderson Strategic Income fund, generally don’t own cyclicals because of unpredictable cash flow, with the exception of financials (top 10 sectors: corporate high yield, corporate investment grade, Treasuries, bank loans, credit default swaps, ABS, government related, commercial mortgage-backed securities, short credit default swaps, cash & equivalents).
International Trader: Cautious on Paddy Power Betfair: Analysts see double-digit percentage growth in profits and revenue during the next few years, but valuation remains a concern for some.
Asian Trader: Hong Kong’s weakening currency could derail this year’s rally on the local Hang Seng Index, among the world’s top performing markets to date.
Emerging Markets: The broad case for Africa isn’t as strong as it once was, says Scott Thomas of the Wasatch Frontier Emerging Small Countries fund; investors should hold diversified funds or global funds with African exposure.
Commodities: “Oil’s recent rally has run out of steam, and the path of last resistance continues to be lower for the beleaguered market.”
Streetwise: Ulf Lindahl, chief executive of currency management firm A.G. Bisset, believes the dollar’s decline has only begun, a situation that when combined with high stock prices creates a risky environment.
